The Economy: What Are The Central Bankers Saying?

This is WEEKEND EDITION from NPR News. I'm Scott Simon. Every year at this time, many of the world's central bankers gather in Jackson Hole, Wyoming for an annual economic policy symposium, within sight of snow-capped mountain peaks. The economy continues to be weak in much of the world. A select group of journalists is allowed to attend - and Robin Harding, the U.S. Economics Editor of the Financial Times, is one of those journalists.

He joins us from Jackson Hole. Mr. Harding, thank you for being with us.

ROBIN HARDING: My pleasure, Scott.

SIMON: Ben Bernanke, of course, made a long-awaited speech yesterday. What were people looking for in that speech, hoping to hear, and what did they find?

HARDING: Well, I think markets were looking to hear some promise of future Fed policy party, and of course they didn't get that because Mr. Bernanke is always very careful not to make promises. But what he did do was signal really very clearly that he's not happy with the progress of the economy, and implied by doing that that the Fed is going to keep doing more to do everything that it can in order to try and speed the recovery up.

SIMON: And what is that exactly?

HARDING: Well, the Fed basically has two options left. First, that the Fed could buy more long-term treasury bonds, as it has done before to try and drive down long-term interest rates, the kind of thing that affects your mortgage rates. And that policy is also known as quantitative easing.

The other option is that the Fed could communicate that it intends or expects to keep its regular interest rates, the overnight interest rates, close to 0 for even longer. And at the moment it's kind of forecast that those rates will stay low until late 2014. So another option that it has is to extend that date further into the future.

SIMON: Could you help us understand quantitative easing?

HARDING: What quantitative easing means is that the central bank increases the amounts of assets that it holds. So it will go out into the market and say, we want to buy 10-year bonds or 30-year bonds. And it will take them out of private hands and into its own hands.

And the intention there is by reducing the amounts of 10-year bonds that are floating around out there, it will drive down the interest rates, and therefore make interest rates for regular businesses and households when they get a mortgage or take out a business loan lower. And because those rates are lower, that will stimulate the economy speed of growth, encourage businesses to hire, encourage households to spend.

SIMON: I gather, Robin, that there's another school of thought among these very influential bankers who believe that another round of quantitative easing just won't help at all.

HARDING: There certainly is, and this has been big debate at the conference; and does quantitative easing work, does it actually have an effect on interest rates, and does it actually have an effect on the economy? And what some of the Fed policymakers say is that, look, we've done trillions of dollars of this over the last few years, and it really hasn't made that much difference.

The counter argument to that is if they hadn't done trillions of dollars of this, would the economy not be in an even worse hole that it already is?

SIMON: What do you hear from bankers? Are you able to gauge - for a lack of a better word - the mood that they have as they look at the economy?

HARDING: The mood has become quite pessimistic just because this has dragged on for so much longer than anyone expected it to. I've been following the Fed for a number of years and what's always been the case is people have said next year growth is going to be stronger. Next year we're going to start climbing out of this and get back to normal.

And then every year, some nasty event, like the crisis in Europe and now fears about the fiscal cliff at the end of this year, has come along and kind of set things about. And I think there's a sort of mood of what do we have to do to get the economy going again.

But at the same time, I don't think there's any immediate pessimism about where the U.S. economy is going right now. You don't hear people worrying about recession, you don't people suggesting that we're heading downwards from here. It's just this question, how can we really recover? How can we get things going again?

SIMON: Robin Harding, U.S. Economist Editor of the Financial Times. Thanks so much for being with us.